Liddelow v Gelavis [No 2]
[2008] WASC 64
•6 MARCH 2008
LIDDELOW -v- GELAVIS [No 2] [2008] WASC 64
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2008] WASC 64 | |
| 06/05/2008 | |||
| Case No: | CIV:1676/2006 | 6 MARCH 2008 | |
| Coram: | MARTIN CJ | 5/03/08 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Application to strike out defence and counterclaim dismissed | ||
| B | |||
| PDF Version |
| Parties: | KANE LIDDELOW UMBERTO CARMELO MONDELLO GEORGE MICHAEL GELAVIS CHRISTIAN ANTHONY SINGLETON ALLIANCE WA PTY LTD (ACN 101 521 233) |
Catchwords: | Pleading Application to strike out defence Defendants claim that profits derived from the plaintiffs' interest in another business should be taken into account in assessing plaintiffs' alleged loss Plaintiffs assert no obligation to bring to account profits derived from another business interest Failure to establish no reasonable defence |
Legislation: | Rules of the Supreme Court 1971 (WA), O 20 r 19 |
Case References: | British Westinghouse Electric and Manufacturing Ltd v Underground Electric Railways Co Ltd [1912] AC 673 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Hussey v Eels [1990] 2 QB 227 Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1991) 33 FCR 1 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- First Plaintiff
UMBERTO CARMELO MONDELLO
Second Plaintiff
AND
GEORGE MICHAEL GELAVIS
First Defendant
CHRISTIAN ANTHONY SINGLETON
Second Defendant
ALLIANCE WA PTY LTD (ACN 101 521 233)
Third Defendant
Catchwords:
Pleading - Application to strike out defence - Defendants claim that profits derived from the plaintiffs' interest in another business should be taken into account in assessing plaintiffs' alleged loss - Plaintiffs assert no obligation to
(Page 2)
bring to account profits derived from another business interest - Failure to establish no reasonable defence
Legislation:
Rules of the Supreme Court 1971 (WA), O 20 r 19
Result:
Application to strike out defence and counterclaim dismissed
Category: B
Representation:
Counsel:
First Plaintiff : Mr K E Yin
Second Plaintiff : Mr K E Yin
First Defendant : Mr S J Lemonis
Second Defendant : Mr S J Lemonis
Third Defendant : Mr S J Lemonis
Solicitors:
First Plaintiff : Murcia Pestell Hillard
Second Plaintiff : Murcia Pestell Hillard
First Defendant : Fairweather & Lemonis
Second Defendant : Fairweather & Lemonis
Third Defendant : Fairweather & Lemonis
Case(s) referred to in judgment(s):
British Westinghouse Electric and Manufacturing Ltd v Underground Electric Railways Co Ltd [1912] AC 673
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Hussey v Eels [1990] 2 QB 227
Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1991) 33 FCR 1
(Page 3)
- MARTIN CJ:
1 (This judgment was delivered extemporaneously on 6 March 2008 and has been edited from the transcript.)
2 The plaintiffs apply to strike out par 29 of the defendants' reamended defence and counterclaim on the grounds that it discloses no reasonable ground of defence within the meaning of O 20 r 19 of the Rules of the Supreme Court 1971 (WA). In order to provide the context of the issues which have been raised in the course of argument, it is necessary to refer to the proceedings in more general terms.
3 By their reamended statement of claim, the plaintiffs allege that they entered into an agreement with the defendants for the development of a business for the supply of telephone and telecommunications products and services, the management of agents who procured contracts for the supply of such services and the sale of mobile telephone handsets and accessories. The plaintiffs allege that it was a term of the agreement that they would be employed by the third defendant as sales managers. They also allege that there were terms agreed which would have given them an equity interest in the business and an interest in the profits derived by the business.
4 In addition, the plaintiffs make a claim against the defendants for misleading and deceptive conduct. They allege that in October and early November 2003 statements were made by and on behalf of the defendants which misdescribed the financial condition of the business which had been created and in which the plaintiffs were employed.
5 In a nutshell, they allege that it was represented to them that the business was insolvent, whereas in fact it was solvent and profitable. They allege that in reliance upon the representations made by and on behalf of the defendants, they each determined to cease their involvement with the business. From the current form of the pleading, this includes terminating their employment with the business in or about November or December 2003 on the basis that they would be paid 'a gift in the sum of $2,500 each for a minimum of six months [sic]' as and by way of severance payment. They allege that if they had known of the falsity of the representations or if the representations had not been made, they would have taken steps that would have resulted in their acquiring the interest in the business which they say was the subject of their earlier agreement with the defendants.
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6 It seems implicit in the claim as presently formulated that it proceeds upon the assumption that, but for the alleged misleading and deceptive conduct, the plaintiffs would have remained employed in the business of the third defendant, assisting in its development and acquiring an interest in the business. The plaintiffs claim damages to compensate them for the loss of the interest which they would otherwise have had in the business but for their reliance upon the conduct which is alleged to be misleading and deceptive.
7 In their reamended defence and counterclaim, the defendants join issue with many of the allegations made by the plaintiffs. They assert that, in fact, the business was in a parlous financial state in early December 2003 as a result of a dispute with Vodafone, whose products and services were distributed by the defendants. In addition, the defendants assert, by par 29 of their reamended defence and counterclaim, that the plaintiffs have not suffered any loss and damage by reason of their reliance upon the conduct which they allege to be misleading and deceptive. It is par 29 which the plaintiffs seek to strike out.
8 In that paragraph, the defendants plead that after ceasing their employment with the third defendant, the plaintiffs commenced another business. The paragraph alleges that the new business was as a dealer supplying Vodafone products in Western Australia. The defendants allege that Vodafone would not have permitted the plaintiffs to run a business as a dealer in Vodafone products while at the same time having an interest in the third defendant which was responsible for managing such dealers.
9 The defendants also allege in the same paragraph that following the cessation of his employment with the third defendant, the second plaintiff established another business which involved the sale and marketing of Hutchison 3G Australia Pty Ltd products and services. The defendants allege that the second plaintiff would not have commenced that business if he had retained the alleged interest in the business conducted by the third defendant. The defendants say that is because Hutchison 3G Australia Pty Ltd is a direct competitor of Vodafone, and that Vodafone would not have maintained its relationship with the third defendant if the second plaintiff was operating a competitive business while retaining an interest in a business conducted by the third defendant.
10 In summary therefore, the defendants assert that following the cessation of their involvement with the business conducted by the defendants, the plaintiffs have been in a position to operate certain
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- businesses. It is asserted that the plaintiffs would not have been able to conduct such businesses if they had retained an interest in the business of the third defendant.
11 The defendants assert that the profits derived from the plaintiffs' interests in those businesses should be brought to account in assessing the extent to which they have suffered loss and damage.
12 The plaintiffs assert that there is no obligation upon them to bring to account profits which they have derived from other businesses. They assert therefore, that par 29 of the amended defence and counterclaim discloses no reasonable ground of defence within the meaning of O 20 r 19 of the Rules of the Supreme Court 1971 (WA) and should be struck out. The plaintiffs have cited a number of cases in support of that proposition. However, with respect, none of them appear to have any direct bearing upon the issue raised by par 29 of the reamended defence and counterclaim.
13 For example, Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1991) 33 FCR 1 concerned a very different factual circumstance. That case concerned the question of whether, in the context of a complex commercial arrangement, funds received by the respondents from a third party should be brought to account in assessment of the damages suffered by reason of the appellants' fraud. In that context, the Court concluded that the answer to that question depended upon the character of the payments made by the third party and, in particular, whether it could be taken that the third party was intending to reduce the prospective liability of the appellants.
14 Those circumstances are very different from the present. In the present circumstances, I can see no reason why the character of the payments made by the customers of the businesses which the plaintiffs have set up following the termination of their relationship with the defendants should make any difference to the question of whether or not the profits derived from those businesses are properly brought to account in the assessment of the loss, if any, which the plaintiffs have suffered by reason of their reliance upon the alleged misleading and deceptive conduct.
15 The plaintiffs also rely upon British Westinghouse Electric and Manufacturing Ltd v Underground Electric Railways Co Ltd [1912] AC 673. That was a case in which a railway company acquired turbines which were deficient in power and in economy of working. Because of
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- these deficiencies, the railway company purchased new, better turbines which had significant advantages over and above the turbines for which they originally contracted.
16 Again, that is a very different factual circumstance to the present. Here, a claim is made for the value of an interest which the plaintiffs say they would have had in the business conducted by the defendants if they had remained engaged in the conduct of that business, had they not relied upon conduct which they assert is misleading and deceptive.
17 In British Westinghouse Electric,the House of Lords held that the pecuniary advantage derived by the railway company from the superiority of the substituted turbines was a matter properly brought to account in the assessment of damages because, but for the breach of contract, those superior turbines would not have been acquired.
18 The case stands for the general proposition that if there is the requisite causal connection between an event giving rise to a loss and to the derivation of a benefit, the benefit must be brought to account.
19 The plaintiffs further rely upon Hussey v Eels [1990] 2 QB 227. Again, the facts of that case were very different. The case concerned a claim for breach of a contract for the sale of land. The plaintiffs, who were purchasers, claimed the difference between the amount which they paid and the value of the land at the time they acquired it which is, of course, the conventional measure of loss in such cases. However, at trial, evidence was led to the effect that the plaintiffs had resold at a profit after obtaining planning permission for redevelopment of the land.
20 The Court of Appeal held that it was wrong in principle to require the profit upon resale to be brought to account because the resale was not part of a continuous transaction of which the purchase was the inception. As a result, it could not be said that the breach of contract had also caused whatever profit had been derived on resale.
21 Again, that is a very different factual circumstance to the present case. However, Hussey v Eels does show that in resolving issues of this kind the degree of causal connection between the breach causing the damage which is said to have been suffered and the benefit which a party says has to be brought to account is an important consideration.
22 In that context, the plaintiffs accept that in issues of this kind there are questions of fact and degree involved. That concession must be fatal to an application to strike out a portion of a pleading, unless it can be
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- established that no matter what view is taken of the questions of fact and degree which are foreshadowed by the contentious paragraph, no reasonable defence could be made out. But that conclusion cannot be drawn from the terms of par 29 of the reamended defence and counterclaim.
23 On the face of the pleadings, the plaintiffs claim by way of damages the value which they would have derived had they remained engaged in a business relationship with the defendants earning salary and deriving profits from a share in the defendants' business. Their claim as currently formulated is necessarily premised on the assumption that they would have continued their active engagement in the business conducted by the defendants.
24 In that context, it seems to me to be entirely reasonable for the defendants to assert that if the plaintiffs had remained working in the defendants' business they would not have been able to work in the other businesses which they have created. Therefore the assessment of the net loss, if any, which they have suffered by reason of the alleged misleading and deceptive conduct, must take into account the benefits they had derived as a result of being released from their commitments to the defendants' business.
25 It seems to me that this is nothing more than a general application of the principle that the measure of damages in a case involving misleading and deceptive conduct is the sum of money required to put the plaintiff in the position in which he or she would have been but for the commission of the conduct.
26 It is therefore necessary to assess what the plaintiff would have done had he or she not relied upon the relevant representation; see Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, 13, and then to compare that with what in fact happened; provided, of course, that what in fact happened was the consequence of the misleading and deceptive conduct.
27 In this case, the plaintiffs assert that by reason of the misleading and deceptive conduct which they allege, they severed their continuing connection with the defendants. But, of course, that did not mean that they were entitled to sit on their hands and do nothing.
28 The defendants wish to allege that instead of doing nothing, the plaintiffs used the time and skills which they were not deploying in the development of the defendants' business in the development of their own
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- businesses. The defendants assert that the profits derived from the new businesses set up by the plaintiffs are in a sense the consequence of the alleged misleading and deceptive conduct because, but for that conduct, the businesses could not and would not have been set up.
29 The defendants wish to argue at trial that the assessment of the net loss suffered by the plaintiffs by reason of any misleading and deceptive conduct which is found must therefore take account of the benefits which the plaintiffs have derived as a result of no longer being committed to working in the development of the defendants' business. That proposition is at least arguable and is sufficient to sustain par 29 of the defence and counterclaim.
30 It seems to me that an appropriate analogy may be taken from a circumstance in which a lessee breaches a lease for a fixed term by vacating the premises early and ceasing payment of rent. While it may be open to the lessor to leave the premises vacant and sue upon the covenant to pay rent, another option available to the lessor is to terminate the lease and sue for damages for breach.
31 In that circumstance, if the premises have been relet, the lessor is obliged to bring to account the rent which has been received under the reletting. That is because, but for the breach and termination, there would have been no capacity to earn rent from the new tenant. So, by analogy, the defendants here wish to argue that, but for the plaintiffs' termination of their continuing relationship with the defendants, the plaintiffs would have had no opportunity or capacity to start and develop the new businesses which they have developed since early 2004.
32 The defendants therefore wish to argue that the net loss, if any, suffered by the plaintiffs is to be measured by comparing the remuneration, profits and capital value which the plaintiffs would have derived had they remained connected with the business operated by the defendants as compared to the profits, remuneration and capital value which they have derived from the commencement of their own businesses, something which they would not have been able to do if they had not relied upon the alleged misleading and deceptive conduct.
33 For these reasons, it seems to me that par 29 discloses a reasonably arguable ground of defence and I will dismiss the plaintiffs' application to strike out that paragraph from the reamended defence and counterclaim.
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